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As Andy Haldane, Executive Director of Financial Stability at the Bank of England said to Members of Parliament in London last week,

“We’ve intentionally blown the biggest government bond bubble in history.”

Now having pricked that bubble through Bernanke’s taper comments it may now be a case of controlling that implosion. Thats the new game.

In theory, the Fed could continue to print money and buy Treasuries and mortgage-backed securities, or even pure junk, at the current rate of $85 billion a month until the bitter end. But the bitter end would be unpleasant even for those that the Fed represents – and now they’re speaking up publicly.

“Savers have paid a huge price in this recovery,” was how Wells Fargo CEO John Stumpf phrased it on Thursday – a sudden flash of empathy, after nearly five years of Fed policies that pushed interest rates on savings accounts and CDs below inflation, a form of soft confiscation, of which he and his TBTF bank were prime beneficiaries. That interest rates were rising based on Fed Chairman Ben Bernanke’s insinuation of a taper was “a good thing,” he told CNBC. “We need to get back to normal.”

A week earlier, it was Goldman Sachs CEO Lloyd Blankfein: “Eventually interest rates have to normalize,” he said. “It’s not normal to have 2% rates.”

They weren’t worried about savers – to heck with them. They weren’t worried about inflation either. They were worried about the system, their system. It might break down if the bond bubble were allowed to continue inflating only to implode suddenly in an out-of-control manner. It would threaten their empires. That would be the bitter end.

Andy Haldane, Director of Financial Stability at the Bank of England, put it this way: “We’ve intentionally blown the biggest government bond bubble in history.” The bursting of that bubble was now a risk he felt “acutely,” and he saw “a disorderly reversion” of yields as the “biggest risk to global financial stability” [my take… Biggest Bond Bubble In History Is Turning Into Carnage].

Preventing that “disorderly reversion” of yields is the Fed’s job, in the eyes of Stumpf, Blankfein, Haldane, and all the others. The Fed should let the air out gradually to bring yields back to “normal.” So the Fed hasn’t actually changed course yet. It’s keeping short-term rates at near zero, and it’s still buying bonds. But it has started to talk about changing course – and the hissing sound from the deflating bond bubble has become deafening.

Long-term Treasuries went into a tailspin. The 10-year note had the worst week since June 2009, the days of the Financial Crisis; yields jumped 39 basis points (13 bps on Friday alone), to 2.55%. Up from 1.66% on May 2. And almost double from the silly 1.3% that it briefly bushed last August.

The average 30-year mortgage rate increased to 4.17%, from 3.59% in early May. In response, the Refinancing Index crashed by almost 40%. Banks have sucked billions in fees out of the system via the refinancing bubble, but that game is over. And the Purchase Index dropped 3% for the week, a sign that higher rates might start to impact home purchases.

Then there was the junk-bond rout. They’d had a phenomenal run since the Fed started its money-printing and bond-buying binge. Average yields dropped from over 20% during the Financial Crisis to an all-time insane low of 5.24% – insane, because this is junk! It has a relatively high probability of default, and then the principal vanishes. That was on May 9, the day the rout started. The average yield hit 6.66% on Thursday. Investors have started to take a gander at what they’re buying and would like to be compensated for some of the risks that they’re suddenly seeing again. The feeding frenzy for yield is over. A sea change! Some companies might not be able to find buyers for their junk. And there will be defaults.

To preserve the system, as dysfunctional as it has become, the Fed has set out to tamp down on that feeding frenzy for yield, the hair-raising speculation, and blind risk-taking that its easy money policies have engendered – that is, financial risk-taking which doesn’t create jobs and doesn’t move the economy forward but just stuffs balance sheets with explosives. With its vague and inconsistent words, the Fed pricked the bond bubble but now is scrambling to control the implosion and soften that giant hissing sound. It doesn’t want the bubble to go pop. Its strategy: sowing confusion and dissension so that investors would react in both directions, with violent swings up and down, not just down.

The first big gun to open fire on the “taper” promulgations was St. Louis Fed President James Bullard when he announced on Friday that he’d dissented with the FMOC’s decision “to authorize the Chairman” to discuss publicly “a more elaborate plan” for the taper and an “approximate timeline.” They were premature. “Policy actions should be undertaken to meet policy objectives, not calendar objectives,” he said.

As stocks were heading south, three hours before what might have been a very ugly Friday close, after Thursday’s plunge, Jon Hilsenrath was dispatched. He is considered a backchannel mouthpiece of the Fed, and markets feed on his morsels. “The markets might be misreading the Federal Reserve’s messages,” he wrote in the Wall Street Journal. Stocks turned around on a dime. Others chimed in. The cacophony grew. And any consensus of when the Fed might actually taper its bond purchases dissolved into hot air.

That’s the plan. To accomplish its goal of preventing, as Haldane called it, “a disorderly reversion” of yields, the Fed will redouble its efforts to spread dissention and uncertainty, to intersperse periods of misery with periods of false hope, to stretch out the process over years so that big players have time to reposition themselves – and make some money doing it, or fall off the cliff and get bailed out, while others will end up holding the bag. Which is how bubbles end.

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According to Kevin Warsh,( former member of the Board of Governors of the Federal Reserve from from 2006 to 2011), the Fed has no “plan B” and Washington has no strategies for growth. Well one thing is for sure, whatever they are trying, it ain’t working.

At the very crux of the financial crisis, former Fed governor Kevin Warsh notes, “experimental extreme monetary policy,” had the “right risk-reward”, but, he warns, in this excellent (and somewhat chilling) discussion at the Milken Institute, “we left a financial crisis more than for years ago.” While the politicians may ‘prefer’ to think of this as a crisis – and indeed “for them it is a crisis as they preside over an economy that refuses to grow,” which has tended to lead to loss of office, but, Warsh condemns, “they have run out of excuses.” Over the last several years, “[the Fed] has over-promised and under-delivered,” and the bank’s most important asset – credibility – is under attack.

The Fed has “enabled” Washington to do nothing, since the politicians expect the same “rabbit out of the hat” rescue that occurred in the darkest days of the financial crisis. This means no growth strategies (“the mix of policies has to be right”) will occur. Since the financial crisis, Washington has done its level best to focus on GDP in the next quarter, or perhaps the election, and precious little beyond that short-term horizon. Warsh concludes, “There Is No Plan B.”

The Fed has fewer degrees of freedom and the rest of Washington is not coming to the rescue; and furthermore “the ability of a central bank, exclusively, without the rest of Washington doing any bit of the task, to turn an economy from a modest recovery to a robust one is an experiment that is untested – and will not prove to be successful.“

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The latest to get in on the gold repatriation act looks to be Texas if the new bill introduced by Rep Giovanni Capriglione passes. More and more nations are wising up and are not prepared to accept blindly that the gold is there.

This is one of the most interesting stories I have read regarding the precious metals market in quite some time. It appears that Texas Rep. Giovanni Capriglione has a bill in play that would move the state’s gold from New York (where its under the “safekeeping” of the ultra shady Federal Reserve) to a depository within the state of Texas itself. The reason this would be such a big deal if it happens, is because a lot of the gold bought and sold globally is not very likely not actually owned by those that “buy” it. From my perspective, pretty much the only countries that actually buy gold and bring it within their borders are China, Russia and Iran. Most other nations that claim they “bought” gold, most likely hold a certificate that states they have gold in London or New York. So in other words, they have no gold. It looks like Texas is wising up.

From the Star-Telegram:

Freshman Rep. Giovanni Capriglione, R-Southlake, is carrying a bill that would establish the Texas Bullion Depository, a secure state-based bank to house $1 billion worth of gold bars owned by the University of Texas Investment Management Co., or UTIMCO, and stored by the Federal Reserve.

“If you think gold is a hedge, or a protection, you always want it as close to the individual and the entity as possible,” Paul told The Texas Tribune on Thursday.” Texas is better served if it knows exactly where the gold is rather than depending on the security of the Federal Reserve.”

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This story has intensifying as the New York Fed has predictably denied Germany an audit of its gold reserves stored in New York. Over 1500 tonnes of gold at stake will only increase pressure on German authorities and is very bullish for gold as it leads more credibility to those who claim that it has been leased out but the CBs to suppress gold prices.

Calls for Germany to repatriate its 1,536 tons of gold reserves held at the NY Fed are intensifying as Der Spiegel reports the Federal Reserve has refused to allow German inspectors to even view the country’s massive gold reserves “in the interest of security and of the control process“.

We have stated repeatedly that with repatriation and/or audit requests completed or in progress by Venezuela, Germany, Switzerland, and the Netherlands, The BOE and the Fed suddenly find themselves in a heap of trouble as the situation (and confidence that the Central banks actually still hold the tungsten gold reserves on deposit) is rapidly deteriorating. More on the Fed’s non-compliance with German requests to view/inspect their own gold below.

While Bundesbank officials likely understand the reality (much better than German politicians do) that a German repatriation of it’s entire 1,536 tons of gold reserves held at the NY Fed would likely cause a complete Western financial collapse if/when the Fed failed to promptly deliver said gold (tungsten free), confidence in the Fed and the BOE has clearly been shattered, and it is now only a matter of time for an absolute mad run on every last gram of physical metal underneath the NY Fed ensues.